EVERY YEAR, JEFF BEZOS FOUNDER OF AMAZON writes an open letter to Amazon’s shareholders. With time they have become a great source of insight for anyone who wishes to understand how with his unconventional thinking he single-handedly created an ultra-successful innovative and path-breaking, trendsetter company. Believe me, these letters in themselves are a crash course in business, technology, and leadership.
Let’s unpack wisdom from one such letter. It’s definitely worth reading.
In that letter, he mentions a simple methodology for decision-making. A great technique that is equally effective in every aspect of life. Just understand and begin to apply in your personnel and professional life from today. Let’s begin:
Jeff Bezos puts all decisions into two categories: Type 1 and Type 2.
Type 1 decisions are nearly irreversible and Type 2 are irreversible. He equates these two types of decisions using the analogy of walking through the door. Type 1 decisions are like walking through a one-way door. When you enter them by opening the door, and if you don’t like what you see and feel you’re getting stuck there. You cannot easily turn- around open the door again and return back where you were before.
Type 2 decisions on the other hand are like a two-way door. When you walk past them, get to the other side and when don’t like what you see, you can simply turn back and return to where you were before.
He says the real problem is when we confuse the two.
Since Type 1 decisions are irreversible, we need to be very careful while making them. They can be big and consequential and hence must be made methodically and strategically. They require careful thinking. But, Type 2 decisions being reversible, we can afford to take them quickly. They can be made fast by people or groups with good judgment and relevant experience.
But, according to him most of the decisions we face in life are not Type 1 decision. The majority of decisions are reversible and changeable.
He writes in the letter,
“As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We’ll have to figure out how to fight that tendency. And one-size-fits-all thinking will turn out to be only one of the pitfalls. We’ll work hard to avoid it… and any other large organization maladies we can identify.”
Now, just stop, pause and reflect back on our life. Don’t we do the same? The majority of us place equal value on almost every decision we make in our life. Why? Well, we don’t want to fail, we don’t want to appear wrong or we don’t want to commit mistakes. This fear of failure or mistake makes us wary and cautious enough to assume that every decision is a Type 1 decision.
It’s easy to fall into the trap of assuming that every decision is extremely important and maybe life-changing. We do that and become almost paralyze and thus make no decision at all. You become vulnerable to analysis paralysis, which ultimately leads to procrastination.
But this strategy takes us away from the very thing we all want so desperately in life- success. Just scan history and you’ll see every success story is sprinkled with lots of failures, mistakes, and wrong decisions. In fact, this is the very reason why they are successful.
Let me just give you a simple formula for success in decision making: Every time you need to make an important decision, first decide whether it’s a Type 1 or a Type 2 decision. Once that is clear and if it is a Type 2 decision, reversible and changeable, then go ahead respond fast and execute the decision quickly.
What if you get it wrong? It’s ok, sometimes you’ll get it wrong, you may falter, commit some mistake on the way. You cannot make the perfect decision every single time no matter how detail-oriented you may be. But every time you make a decision you gain more experience. Every experience will offer valuable lessons, make you a little wiser. With course correction, you’ll grow more skilled and develop more capabilities on the way. Soon, you’ll have all the skills, information, knowledge, experience and even tools you need to execute those decisions.
What does that mean? It means that a greater percentage of Type 2 decisions will work out and you’ll make as many Type 2 decisions as you can.
Remember this: the ability to make decisions fast and quickly is a competitive advantage. Be like a start-up. In the early years, one major advantage that start-ups have is that they can take fast decisions especially Type 2 decisions. Failure, risk taking, and mistakes are accepted as a necessity for survival. This is what makes them more innovative.
But, as organizations get bigger and larger in size, they risk losing the very competitive streak and innovative edge that made them what they had become. More and more decisions start to appear as Type 1 decisions. Risk is avoided at all costs, complacency and inertia sets in. The tempo of a start-up is lost.
Jeff Bezos was basically hinting at this very trait in his company. For long he successfully maintained the tempo of a start-up. We all can learn from this approach.
If you are a leader in your organization, be it at any level- mid, senior or “C” level, let this understanding of Type 1 and 2 decisions get into the DNA of your people and teams. Empower them to make reversible decisions fast and quick, then learn from them and move at the pace of a start-up.
In the same letter in a footnote, Jeff Bezos acknowledges that taking Type 1 decisions lightly is an even bigger mistake.
“The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large.”
So, teach your people to distinguish between Type1 and Type decisions. Share this decision-making approach with your people. It can be liberating.
Tell them, make Type 1 decisions as fast as possible and make Type 2 decisions as slow as possible.
Making good decisions is the secret at Amazon. It can become yours too.
What do you think about this decision-making philosophy? Please comment in the box below. I would love to hear from you.